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Blog

Home > ACOS VS ROAS: How They Are Related and Which One to Prefer

E-commercePPC

ACOS VS ROAS: How They Are Related and Which One to Prefer

March 23, 2023 by Viktoria Arsenteva

ACOS VS ROAS

When it comes to assessing the cost of Amazon advertising, understanding the differences between ACOS vs ROAS is crucial. This blog post aims to provide a clear distinction between these two indicators. In addition, we will also cover another important metric — TACoS.

As you read through this post, you will acquire the skills to compute your Amazon ACoS, TACoS and ROAS, evaluate the progress of your business, and optimize the metrics to drive profitability. 

Contents

1. ACoS or ROAS

2. ACoS

  • What is Amazon ACoS?
  • How to Calculate ACoS?
  • What is a Good ACoS?
  • Why Is ACoS Important?
  • How to Reduce ACoS on Amazon?

3. TACoS

  • What is Amazon TACoS
  • How to Calculate TACoS?
  • What Is a Good TACoS?
  • Why Is TACoS Important?

4. ROAS

  • What is Amazon ROAS?
  • How to Calculate ROAS?
  • What Is a Good ROAS?
  • Why Is ROAS Important?

5. ROAS VS ACoS: Why Different Terms?

6. How ACoS and ROAS Metrics are Interconnected and Which One to Choose

7. Conclusion

8. FAQ

ACoS or ROAS

ACoS or ROAS? They both are important metrics in digital advertising, but they serve different purposes. While ACoS helps you understand the cost of acquiring a sale, ROAS provides a more comprehensive picture of your campaign’s performance by measuring the revenue generated.

Here is a brief explanation of the difference between ACoS and ROAS:

 

ACOS VS ROAS Infographic

 

In the following sections, I will discuss the specifics of each metric and show a quick way to convert one metric to another, give examples of good and bad ACoS and ROAS, and explain why TACoS should be calculated.

Check out our other article to know more about Amazon PPC.

ACoS

Amazon sellers and advertisers use ACoS as a key performance indicator (KPI) to track the success of advertising campaigns and adjust their strategies accordingly to improve their return on investment (ROI).

What is Amazon ACoS?

Advertising Cost of Sale (ACoS) shows the performance of ad campaigns on Amazon. ACoS is a metric that indicates the correlation between your advertising expenditure and sales revenue. The metric represents the amount spent on advertising to generate one dollar in attributed sales.

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How to Calculate ACoS?

Use the formula below to calculate ACoS:

 

ACOS = (Ad Spend / Ad Revenue)*100

 

Suppose your total sales revenue is $500, and you spent $100 on advertising to generate those sales. In that case, your ACoS would be 20%:

 

($100 / $500) *100 = 20%

 

If your ACoS is 100%, it indicates that your advertising spend is equal to your sales revenue, and you’re not making any profit. 

A value less than 100% indicates that you’re earning a profit, while a value greater than 100% implies you spend more on ads than you earn on sales.

What is a Good ACoS?

Determining a desirable ACoS for your advertising campaign isn’t as simple as aiming for an “excellent” value. Instead, it’s important to consider a range of factors such as your product’s advertising methods, cost structure, and PPC metrics. 

It’s not uncommon for ACoS to be higher during the early stages of PPC advertising, but with time and well-defined advertising goals, it’s possible to bring it down.

Therefore, it’s crucial to assess the performance of your advertising campaign based on your specific objectives and circumstances rather than trying to meet a generalized benchmark.

 

What Is good ACoS

 

However, If your aim is to achieve faster growth, a high ACoS can be acceptable as long as you prioritize volume and speed.

Why Is ACoS Important?

Knowing your Amazon ACoS is crucial for creating effective e-commerce PPC campaigns, setting smart bids on search terms, and generating substantial profits over time, all of which can help your business grow.

How to Reduce ACoS on Amazon?

Here are five actionable tips for reducing ACoS on Amazon:

1. Optimize Your Keyword Targeting

Make sure that you are bidding on keywords that are relevant to your product and that are likely to lead to conversions.

2. Monitor Your Campaigns Regularly

Keep a close eye on your campaigns’ performance and make necessary adjustments to optimize your ads. Continuously monitoring your campaigns can help you identify and eliminate underperforming ads, and redirect your budget towards the campaigns that generate the most revenue.

To ensure the success of your online store, partnering with a specialized eCommerce PPC agency can provide expert guidance in refining and maximizing the effectiveness of your advertising efforts.

3. Test Different Ad Formats

Experiment with different ad formats, such as Sponsored Products, Sponsored Brands, and Sponsored Display ads, to identify which format generates the highest return on investment (ROI).

4. Adjust Your Bids Based on Performance

Continuously monitor the performance of your ads and adjust your bids accordingly. Consider increasing your bids on high-converting keywords and reducing them on underperforming ones.

5. Improve Your Product Listings

Ensure that your product listings are optimized for conversion. This includes providing clear and compelling product descriptions, high-quality images, and competitive pricing.

TACoS

TACoS provides a comprehensive view of your business’s performance.

What is Amazon TACoS?

Total Advertising Cost of Sales (TACoS) is the complete view of your Amazon business. Unlike ACoS, which measures only advertising results, TACoS considers all sales, even those not directly from advertising.

How to Calculate TACoS?

Use the formula below to calculate TACoS:

 

TACoS = (Ad Spend / Total Sales)*100

 

In our previous example, we had $500 in sales from ads, and we spent $100 to generate those sales. ACoS is 20%. Let’s say that we generated a total of $2,000 in sales for the same time period. So, TACoS would be:

 

($100 / $2,000) * 100 = 5%

What Is a Good TACoS?

If your TACoS is above 20%, it indicates that your ads are not generating enough sales, and you may need to optimize your bids and keywords to improve their performance.

A TACoS percentage below 20% indicates that your ads are producing a substantial number of sales and your overall sales are high.

Why Is TACoS Important?

TACoS is important to monitor because it provides a complete picture of your business’s performance, including both advertising and non-advertising sales. By tracking TACoS, you can understand the effectiveness of your entire business strategy, identify areas for improvement, and allocate your resources accordingly. 

Additionally, monitoring TACoS over time can help you identify trends in your business’s performance and make strategic decisions for long-term growth.

ROAS

ROAS is the flipped version of ACoS.

What is Amazon ROAS?

Return on Ad Spend (ROAS) indicates the amount of revenue generated for every dollar spent on advertising. Essentially, it shows how effectively an advertising campaign is converting ad spend into revenue.

How to Calculate ROAS?

Use the formula below to calculate ROAS:

 

ROAS = (Ad Revenue / Ad Spend)*100

 

Let’s go back to our example. We spent $100 on advertising and earned $500 thanks to this ad campaign. To calculate ROAS, we divide $500 in sales by $100 in ad spend:

 

($500 / $100) *100 = 500%

 

So, the ROAS is 500%. In other words, for every dollar spent on the ad campaign, we earned $5.

What Is a Good ROAS?

Check out the infographic below to learn what ROAS is considered good:

 

What is good ROAS

Why Is ROAS Important?

ROAS serves as a barometer for measuring the triumph of a particular advertising campaign. It’s worth noting that each type of campaign has a distinct target ROAS. For instance, retargeting campaigns require a high ROAS but a low ACoS, whereas prospecting campaigns, aimed at acquiring new customers, necessitate a low ROAS but a high ACoS.

The video from the official Amazon channel below will help you understand how to better manage ROAS for your Sponsored Products campaigns:

ROAS VS ACoS: Why Different Terms?

Marketing experts prefer ROAS as it measures the efficiency of ad spend and enables easy comparison with other marketing activities. On the other hand, ACoS is useful for assessing the profitability of a campaign and determining the break-even point. 

In summary, ACoS emphasizes costs, while RoAS emphasizes returns.

How ACoS and ROAS Metrics are Interconnected and Which One to Choose

As you can see, the variables are essentially identical; we’re merely looking at them from distinct perspectives. They aim the same thing: to evaluate whether your ad campaigns are yielding profits or not.

You can easily and quickly convert one metric to another using our ACoS to ROAS calculator: 

Convert ACoS to ROAS

ACOS
%
ROAS
%

Convert ROAS to ACoS

ROAS
%
ACOS
%

While ACoS and ROAS offer similar information, the best approach is to utilize the metric that you feel most confident interpreting.

Conclusion

Mastering ACoS and RoAS will help you achieve your business goals and maximize the profitability of your Amazon store. By gaining a deeper understanding of these concepts, you can equip yourself with the necessary tools to effectively expand your business. Additionally, you will be able to gain more insights into the calculation of sponsored PPC ad expenses, which will ultimately enable you to optimize your advertising strategies.

Check out our article on how to increase e-commerce sales and learn about proven techniques that can help you grow your business.

You can also learn how to set up Amazon PPC with our guide. But if you want to take your Amazon sales to the next level with expert Amazon PPC management — contact us now!

FAQ

What is the relation between ACoS and ROAS?

ACoS and ROAS are both metrics used to measure the effectiveness of advertising campaigns. However they are calculated differently and provide slightly different insights. A low ACoS indicates that advertising spend is generating sales efficiently, while a high ROAS indicates that advertising spend is generating a high return on investment.

What is the ideal ROAS ratio?

A frequently used benchmark for ROAS is a 4:1 ratio, which means generating $4 in revenue for every $1 spent on advertising. However, businesses with different financial circumstances and goals may need to adjust their ROAS targets accordingly.

How to increase ROAS?

To increase ROAS (Return on Advertising Spend), there are several strategies you can implement.

  1. Optimize your targeting by refining your audience to those who are most likely to convert. You can achieve this by using data-driven insights to identify your highest-converting customer segments and adjusting your ad targeting accordingly.
  2. Ensure your ad copy and creative is compelling and relevant to your target audience. This will improve engagement and click-through rates, leading to higher conversion rates and ultimately a better ROAS.
  3. Monitor your campaigns closely and adjust bids based on performance. Use data to identify which keywords, placements, and ad formats are driving the highest ROI and allocate more budget to these areas.
  4. Leverage retargeting to reach users who have already engaged with your brand but haven’t converted. By serving tailored ads to these users, you can increase the likelihood of conversion.
  5. Regularly test and experiment with new ad formats, targeting strategies, and messaging to stay ahead of the competition and continuously improve your ROAS over time.

How to increase ROAS?

To increase ROAS (Return on Advertising Spend), there are several strategies you can implement.

  1. Optimize your targeting by refining your audience to those who are most likely to convert. You can achieve this by using data-driven insights to identify your highest-converting customer segments and adjusting your ad targeting accordingly.
  2. Ensure your ad copy and creative is compelling and relevant to your target audience. This will improve engagement and click-through rates, leading to higher conversion rates and ultimately a better ROAS.
  3. Monitor your campaigns closely and adjust bids based on performance. Use data to identify which keywords, placements, and ad formats are driving the highest ROI and allocate more budget to these areas.
  4. Leverage retargeting to reach users who have already engaged with your brand but haven’t converted. By serving tailored ads to these users, you can increase the likelihood of conversion.
  5. Regularly test and experiment with new ad formats, targeting strategies, and messaging to stay ahead of the competition and continuously improve your ROAS over time.

Which metric should I prioritize: ACOS or ROAS?

The answer to this question depends on your advertising goals and strategy. If your goal is to maximize profit, then ROAS is likely the better metric to prioritize. However, if your goal is to control your advertising spend and ensure that your campaigns are profitable, then ACOS may be the more appropriate metric to focus on. Ultimately, the decision should be based on your unique advertising goals and the specific metrics that are most relevant to achieving those goals.

Can I use both ACOS and ROAS to measure the performance of my advertising campaigns?

Yes, you can use both ACOS and ROAS to measure the performance of your advertising campaigns. In fact, using multiple metrics can provide a more complete picture of your campaign’s performance and allow you to make more informed decisions about your advertising strategy. 

ARTICLE BY

Viktoria Arsenteva

Marketing Specialist and Content Writer at Lira Agency. I enjoy creating valuable and informative content for our clients and visitors. I spend my free time reading books on marketing and psychology.

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